MY BELOVED AUSTRIA

24.02.2019 14:24

I have always loved reading about economics, and I have nurtured myself mostly of Economic History and History of Economic Thought, along with other particular policy issues which I also tend to analyse through articles and reports. In an attempt of being informed and not neutral, but at least, have a balanced and formed opinion, I have always chosen my reading books from large variety of schools of economic thought. From Marxist authors as Tony Nordfiel or Paul Mason, to some Keynesians as Robert Skidelsky, neoclassicals as Robert Lucas, monetarists as my admired Milton Friedman, neosocialists as Ann Pettifor… and a much larger list which includes a tremendous variety of ideologies and ways of looking at economic issues within different historical perspectives. But, if you look at my bookshelf, you’ll be able to appreciate which books stand out most, and as you might guess from the title of this article, those are the works from the Austrian School of Economics. But not just of Economics. It is fair to say that the vast majority of Austrian tradition works I’ve read are related to economics, as it is my topic of interest, but there are also other crucial ones; also, from the Austrian School, related to Law, Philosophy, Moral or Politics.

As I have already written other many articles on the Austrian School, in this one I’ve decided to write about the works of three of the most important philosophers of their tradition, and how they predicted and impacted History, altogether with the crucial importance of reading them nowadays to understand how our society works and the problems it’s facing. These three influential philosophers on nowadays ideology are Friedrich August Von Hayek, Karl Popper and Joseph Alois Schumpeter. It has been hard to leave Ludwig Von Mises out of this list, as his analysis of the free price system and his theory on the impossibility of socialism due to the lack of economic calculation in socialist regimes, is essential to nowadays economics and politics.

What these three philosophers (I will refer to them using this term to find a common designation between them) have in common, apart from having been born in Vienna and developed some of their intellectual career there, is that they have been always powerful defenders of liberty and individual rights and responsibilities. The three of them have fought against tyrannies and oppressive systems of coercion, mainly imposed from and through the State. None of them was never an anarchocapitalist or something similar, as the three of them are mainly related to the Liberty Tradition, otherwise called, Classical Liberalism. It is also useful to bear in mind nowadays, that since the remote times of Bastiat, or even Adam Smith, the vast majority of liberal (European sense) thinkers have supported energetically the decentralization of states to promote competition and spontaneous order; opposite to what nowadays seems to be promulgated in the political atmosphere.

Vienna changed and moulded these three thinkers. It’s essential to remember that between the 1880’s and 1930’s Vienna was a place which served as centre of encounter for hundreds if not thousands of intellectuals from different backgrounds and professions. Sigmund Freud discovered psychoanalytic techniques in Vienna. My beloved Austrian School of Economics created the Center for Study of the Business Cycle in Vienna, led by Hayek. The previously mentioned Mises discovered market mechanisms and hoe speculation and uncertainty affected the economy also in Vienna, and he tutored Hayek almost all his way through his studies on Economics, or cameralistics as some called it initially. Not everything was gold and silver, and other philosophers who supposedly supported liberty at the beginning betrayed this tradition by helping Hitler with the Anschlusspreparations, and with several meetings in public squares welcoming him and promoting Nazism, as was the repugnant case of Ludwig Wittgenstein.

Hayek, Popper and Schumpeter had to emigrate from Vienna in the years previous to 1939; when Hitlerian troops entered the Austrian city, as all of them had or some kind of Jewish roots, or otherwise profound liberal and anti-fascist ideas; so in case of having stayed in Vienna they would probably had been imprisoned and tortured, or later on, sent to political prisoners’ concentration camps, as they did with Communists, Socialdemocrats and Progressives; among others. Schumpeter for example was son of a Catholic family and had profound anti-totalitarian ideas; even though afterwards some have erroneously tried to present him as a defender of Socialism. Popper was an absolute classical liberal and was born in a Jewish family, with historical Jewish roots, while Hayek, according to his family tree also had Jewish blood. They knew each other; specially Hayek and Popper, because they all studied at the University of Vienna, and while Schumpeter worked as finance minister for a socialist Austrian government, he flew to Germany and later on to America in 1932, where he intensified his work on academic research and obtained his fellowship in Harvard University. Hayek went to London in 1931 and started teaching Economics and debating with Keynes at the London School of Economics and Political Science (LSE). Finally, Karl Popper awaited until the last moment and flew to New Zealand in 1937. But which were their main contributions?

Popper took the decision of writing and publishing (1945) his great book The Open Society and Its Enemies, after the Nazi Anschluss, as part of the fight against Nazism from Austrians in the exile. Here, Popper condemns historicism; which the simple theories that sets that there are certain aspects of History predetermined to be repeated, as if we were talking about physical laws. Popper criticizes historicism mainly on the grounds of a defense of individual liberty. The author demonstrates how throughout History, historicism has been used to promote a greater centralized political power, and how these totalitarian forces have continually coerced individual liberties. Popper makes a profound criticism of several relevant philosophers, starting with Plato; and his theories of hierarchy and autocracy, which Popper doesn’t share with him, accusing them of promoting collectivization. Later on, he also deconstructs the origins of Marxism, severely criticizing Hegel’s dialectic and his theories of confrontation. We might think Popper was very liberal in economic terms, but that wasn’t the case at al. Popper even agrees with some parts of Marx’s economic theory, as indirectly with the labour value theory, and his criticism of capitalism based on the worker’s exploitation argument, but attacks Marxist theories alleging that his assumptions on the end of capitalism and his methods are not real politics, they are an utopia with religious characteristics. Leaving aside Popper’s scientific theory, one of his most important theoretical contributions was his defense of decentralization, as he argued that this would lead to a great competition between members of society, leading to more balanced and factual arguments, being change in politics only possible through trial and error, setting himself apart from utopian theories, and in some way supporting the democratic system.

Joseph Schumpeter, first of all, published a Theory of Economic Development, in which he argues that the main cause of economic growth are entrepreneurs and innovations introduced by them in the system, leading to a process of constant product and firm development, and consequently greater efficiency in production, falling costs and much higher living standards. In the Schumpeterian structure of production, the process is defined by a combination of material and immaterial productive forces. The material ones are land, labour and capital, while the immaterial are technological development, enterprise and organization. It could be argued, and it is actually argued by some academics of the History of Economic Thought, that Schumpeter was one of the main theorists of endogenous growth models, introducing factors as technological development and innovative disruption which were later on developed along with the theory of knowledge by Paul Romer in the 90s. People who have read Schumpeter will for sure be waiting for one of the most repeated pair of words in economic literature: “creative destruction”, which describes how entrepreneurs incentivized by profit, and the desire of forming a monopoly, invest largest funds into inventing new products and innovating on already existing ones, displacing old products, methods of production and techniques from the market, and creating space for new ones. In my personal opinion, this is one, if not the best, theory of economic development through innovation of the XX century.

Schumpeter also published Capitalism, Socialism and Democracy,which argues that socialism would naturally replace capitalism, because capitalism created a state of well-being where only those left behind will be preoccupied to fight, bringing socialist policies forwards; understanding capitalism always as a process of innovation and entrepreneurship, not a system dominated by bureaucrats.

I’ve left my favourite one for the end. This is Hayek. I would love to have 10, 20 or 50 pages to describe Hayek’s ideas on institutional development, intertemporal structures of production or the importance of limited government, but sadly, as always, I’m short of space.

Hayek was an enthusiastic supporter of Popper’s views and ideas, apart from being very good friends. One of my favourite books, and one of the most important ones to read nowadays to be able to combat both, right-wing and left-wing populism is The Road To Serfdom, where Hayek makes a severe and realistic critique to collectivism, which has been one of the most genocide ideologies in History. Hayek argues that controlling society in a centralized way under the pretext of reaching a supposedly “common wellbeing” is totally impossible and pretty dangerous, as: 1) Central planners can’t have access to all available information, so processes of allocation can only be left to a decentralized system of information, as it is the market, and 2) Bureaucrats and their good aims for society can’t always be trusted, as if not tyrannies and oppressive regimes wouldn’t have arisen. Hayekian theory derives from Mises price mechanism, which depicts how socialism can’t allocate resources efficiently in the economy, as millions of economic agents can’t just function properly through individual transactions and decentralized management. Because all of this, socialist or in its defect, collectivist systems, will always be coercive and authoritarian. Democratic Socialism is a complete utopia. The centralization of economic power means the centralization of political and social control. Only competition serves as the safeguard of freedom and democracy.

Hayek also presents the importance of the Rule of Law and the existence of Constitutions to set a string system of check and balances, to reduce politicians and bureaucrats’ range of influence and power, in his book The Constitution of Liberty, in which the Austrian thinker debates about philosophy, law and economics.

In conclusion, nowadays, living a tremendous political crisis, where populisms are arising on both extremes, Austrian School thinkers and overall, defenders of liberal democracy are more necessary than ever. The only way of escaping from populisms as Ulysses escaped from the Sirens, is by reading, informing ourselves about the real world, analysing data, contrasting, and overall, keeping in mind how fortunate we are of having freedom. And we should always defend it.